Pampa Energía SA :PAM-US: Earnings Analysis: Q2, 2017 By the Numbers : September 20, 2017

Pampa Energía SA reports financial results for the quarter ended June 30, 2017.

We analyze the earnings along side the following peers of Pampa Energía SA – Enel Generacion Chile S.A. Sponsored ADR, Edenor SA Sponsored ADR Class B, Enel Americas S.A. Sponsored ADR, YPF SA Sponsored ADR Class D, Companhia Paranaense de Energia Sponsored ADR and CPFL Energia S.A. Sponsored ADR (EOCC-US, EDN-US, ENIA-US, YPF-US, ELPVY-US and CPL-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 974.37 million, Net Earnings of USD -5.67 million.
  • Gross margins widened from 2.48% to 25.71% compared to the same period last year, operating (EBITDA) margins now 19.35% from -15.67%.
  • Year-on-year change in operating cash flow of 133.00% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 974.37 973.35 833.61 656.7 289.8
Revenue Growth (%YOY) 236.22 237.27 386.98 220.45 48.26
Earnings (mil) -5.67 122.01 62.9 -61.84 -46.45
Earnings Growth (%YOY) 87.79 194.08 -67.96 -1527.79 -783.86
Net Margin (%) -0.58 12.53 7.55 -9.42 -16.03
EPS -0.07 1.58 0.86 -0.91 -0.68
Return on Equity (%) -0.56 12.57 6.8 -8.28 -8.05
Return on Assets (%) -0.42 9.34 5.03 -6.69 -8.37

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Market Share Versus Profits

Revenues History
Earnings History

PAM-US’s change in revenue this period compared to the same period last year of 236.22% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that PAM-US is holding onto its market share. Also, for comparison purposes, revenues changed by 0.10% and earnings by -104.65% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 2.48% to 25.71% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from -15.67% to 19.35% compared to the same period last year. For comparison, gross margins were 30.02% and EBITDA margins were 23.57% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

PAM-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 30.30, compared to last year’s level of -26.24 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

PAM-US’s change in operating cash flow of 133.00% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -22.98% to 10.86% and (2) one-time items. The company’s pretax margins are now -2.93% compared to -35.94% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Pampa Energía SA is an integrated energy company, which engages in the generation, transmission, and distribution of electricity in Argentina. It operates through the following segments: Generation, Distribution of Energy, Oil and Gas, Refining and Distribution, Petrochemicals, and Holding and Other Business. The Generation segment is consists of the direct and indirect interests of the company in CPB, CTG, CTLL, HINISA, HIDISA, PACOSA, Greenwind, PEFMSA, PEA, TMB, TJSM and through its own electricity generation activities through Central Térmica Genelba and Econoergía, the Pichi Picún Leufú hydroelectric complex, and its equity interest in Enecor. The Distribution of Energy segment represents the indirect interest of the company in EASA and Edenor. The Oil and Gas segment is comprised of the own interest of the company in oil and gas areas and through its direct interest in PEPASA, PELSA, and investments in Oldelval and OCP associates. The Refining and Distribution segment is the own operations in the refinery at Bahía Blanca and the service station network, the equity interest in Refinor associate and the commercialization of the oil produced in Argentina, which is transferred at market prices from the Oil and Gas segment. The Petrochemicals segment is the styrenics operations and the catalytic reformer plant operations of the company conducted in Argentine plants. The Holding and Other Business segment refers to the financial investment transactions, holding activities, interest in joint businesses CITELEC and CIESA and its respective subsidiaries, which hold the concession over the high voltage electricity transmission nationwide and over gas transportation in the south of the country. The company was founded on February 20, 1945 and is headquartered in Buenos Aires, Argentina.

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